- Dow, S&P 500 and Nasdaq 100 climbed 0.76%, 0.74% and 0.67% respectively on reflation hopes
- Asia-Pacific equities may follow a strong US lead higher, underpinned by a weaker US Dollar
- Energy sector was boosted by higher crude oil prices. Tesla propelled Bitcoin prices
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US Stimulus, Crude Oil, Bitcoin, Asia-Pacific Stocks Outlook:
Asia-Pacific equities are poised to trade modestly higher after all three major US equity indices finished at record highs amid favorable market sentiment. The Democrats came up with an initial draft of the US$ 1.9 trillion fiscal stimulus bill, which will soon be sent to Congress for voting. The S&P 500, Dow Jones and Nasdaq 100 index climbed 0.74%, 0.76% and 0.67% respectively, with nearly three quarters of S&P 500 companies finishing in the green.
As expectations for further fiscal spending rose, the US Dollar index pulled back from recent highs to 91.00 and thus alleviated pressure over risk assets and commodities. A weaker US Dollar may also encourage capital flows into emerging markets, buoying equity and currency prices. Meanwhile, the PBOC signaled that it has no intention to tighten monetary policy in its quarterly monetary report after heightened volatility was observed in the short-term money market rates. The central bank’s neutral stance may buoy sentiment in Chinese equity markets, which have been consolidating since late January.
Crude oil prices continued to edge higher on reflation hopes and declines in Covid-19 cases around the world with the rollout of vaccines. The WTI is moving closer to the 58.00 mark – the highest level since January 2020 and well above the pre-Covid perch. Bitcoin surged above US$ 46k mark after Tesla revealed a US$ 1.5 billion investment into the cryptocurrency. The company plans to adopt Bitcoin as a form of payment for its products in the future, igniting hopes for more commercial applications and mainstream recognition of the cryptocurrency.
Bitcoin – Daily Chart
Chart by IG
Australia’s ASX 200 index started slightly lower in early trading hours, with growth and cyclical sectors outperforming the defensive names on reflation hopes. Information technology (+0.89%), materials (+0.87%) and energy (+0.80%) were leading, whereas utilities (-1.32%) and consumer discretionary (-1.16%) were lagging. The index recently broke above a key resistance level of 6,810 after the RBA kept its interest rate unchanged and moved forward with an additional A$ 100 billion asset purchasing program in the policy meeting.
Hong Kong’s Hang Seng Index (HSI) looks set to open flat as mainland traders prepare themselves for the week-long Lunar New Year holiday break. Recently, net southbound inflow via the stock connections have declined (chart below), which may explain the index’s relative underperformance. Daily turnover in the HKEX shrank to HK$ 185 billion on Monday from HK$ 239 billion on last Friday, suggesting that the rally may take a pause amid lowered pre-holiday trading activity.The HKEX will be shut from this Friday to next Monday.
Source: Bloomberg, DailyFX
Looking back to Monday’s close, 8 out of 9 Dow Jones sectors advanced, with 76.7% of the index’s constituents closing in the green. Communication services (+3.62%), energy (+2.49%) and financials (+1.69%) were among the best performers, whereas consumer discretionary (-0.24%), healthcare (+0.10) and consumer staples (+0.18%) trailed behind.
Dow Jones Sector Performance 08-02-2021
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